Hi. As a long-time reader, I’ve always felt that you do a good job of seeing the truth through whatever smoke is being put out, but I’m surprised to see you swallowing the “it’s the hoarders” excuse for our continued shortage of ammo.
Simple supply and demand explains that when demand is higher than the supply, the price goes up. If demand and price remain high, then the supply will surely increase. Eventually, supply is increased to meet demand and the price settles to its “natural” level.
The story we are repeatedly told is that ammo manufacturers have maxed-out their current production lines, making as much ammo as they can. Increasing production beyond that requires adding production lines of expensive equipment, that would need to be run for years in order to recoup the setup cost. But they say that the demand spike is caused by fear from various gun-control related events, and that it’s made worse by hoarders buying it all up. They all say that this is temporary demand and doesn’t justify expanding production.
How long do you buy their “temporary” excuse? The current anti-gun President has been in office for FIVE YEARS, and there have been multiple events that trigger a renewed gun control uproar during that time. There has been a shortage of both guns and ammo for that entire time. I would also expect that the hoarders would have filled their basements with ammo by now, and the new hoarders entering the market every year would be a manageable number. So, the “temporary” excuse just doesn’t hold water anymore.
Another factor here they don’t address is the massive increase in gun sales. When there are more guns being sold, it naturally increases the demand for ammunition. This long-term increase in gun sales should be a clear sign to ammo manufacturers that they should increase production.
To me, the “temporary” increase in demand is not temporary; it’s the new demand level. Management at the ammo companies are either not very smart, or there is some barrier to increasing production that they don’t want to talk about.
HJL Replies: In the case of .22LR product, it isn’t even the “hoarders” that is the problem. It’s your every day users. No one knows for sure, but Wikipedia suggests that the U.S. output is 2.5 billion rounds of .22LR per year. If only half of the Walmart stores across the country sell ammunition, that means that there are 2400 stores selling it. If you simply break it down into bricks of 500 (ignoring the boxes of 100 or 50), that means that each Walmart store gets 2083 bricks per year (five or six bricks per day). That doesn’t even account for the thousands of gun shops and sporting goods stores across the nation.
A second issue is that the .22LR is a narrow margin product. Take a look at that video again and pay close attention to the machines doing the manufacturing. Those are specially-built, dedicated machines. A production line can literally cost millions of dollars to put in place today. Unlike a gun manufacture who can buy one or two CNC mills or lathes and easily increase their production for a couple hundred thousand on a decent margin product, the .22LR folks don’t have that luxury. After the boom is long gone, a CNC machine can be re-tasked, but a special built production line usually can’t without major expenditure. As a bushiness man, they have to weigh the cost of putting in that production line with the predicted length of the current shortage and the financial risk. It is my belief that the domestic companies have been either hoping that the current shortage will end or foreign companies will take the financial risks and make up the production. The domestic companies would much rather focus on a higher margin product, such as center fire cartridges.
As stated in my notes, just because the government issues a request-for-bid or even issues a contract for a specific number of cartridges is no guarantee that they will make an actual purchase of that number. Most contracts are way under-filled. A better indicator of government usage would be actual product shipped/received.